Cyprus: Maritime Liens And Ranking Of Priorities According To Cypriot Law

INTRODUCTION

Cyprus has the fifth largest fleet in the world with a total of 2,873 vessels of approximately 29,080,117 tons. Cypriot vessels are frequently involved in lengthy court proceedings throughout the world and it is often the case (especially in civil-law jurisdictions) that reference is made to the applicable laws of the country of the flag of the vessel.

This article purports to address the issue of the priority of maritime claims under Cyprus Law. It should be noted from the outset that a considerable number of cases has been decided by Cypriot courts on this legal issue, providing for some clear and detailed rules. However, it remains always at the discretion of the court to vary and/or reverse the order of priorities depending on the special circumstances of each particular case, as well as on considerations of equity and natural justice.

MARITIME LIENS

In Kamal Hassanein vs "Hellenic Island" and/or "Island" and others, (1994)1 J.S.C. 578, it was held by the Supreme Court of Cyprus that, by virtue of section 29(2)(a) of the Court of Justice Act of 1960, the sources of Cyprus Admiralty Laws spring from the English Admiralty Laws as those were applied in England prior to Cyprus becoming an independent country, 1 October 1960. Therefore, it should be clarified from the outset that there exist many similarities between English and Cyprus Laws on the issue of maritime liens.

The concept of maritime liens arises under Cyprus Law by virtue of section 3(3) of the English Administration of Justice Act 1956. Although the 1956 Act does not clearly define what is a maritime lien, it has been widely defined as a privileged claim over a vessel or other maritime property in respect of services rendered to, or injury caused by that vessel or maritime property. Where there is a maritime claim on any vessel or other maritime property, the Admiralty jurisdiction of the Cypriot Courts may be invoked by an action in rem against the vessel or maritime property. A maritime lien may be so invoked against the vessel or other maritime property even in the hands of a bona fide purchaser who knew nothing of the claim.

The main categories of claims in respect of which Cyprus Law recognises and upholds maritime liens are as follows: a) bottomry; b) salvage; c) wages; d) Master's wages; e) disbursements and liabilities; and f) damage done by a ship. It should be noted that under Cyprus Law maritime liens enjoy certain advantages over all other permitted actions in rem ("statutory liens", under Cyprus Law a mortgage is special type of statutory lien):

  • As to the time of creation of the lien;
  • In priority; and
  • In enforceability of security.

Under Cyprus Law a maritime lien has a procedural nature and depends on the remedies available in the country where relief is sought (lex fori). Kamal Hassanein vs "Hellenic Island" or "Island" and others (1994) 1 J.S.C. 584. Cypriot Courts in determining the existence of a maritime lien will apply Cyprus Law, even in cases where under a different law (e.g. the lex loci contractus) a maritime lien does exist whereas none exist under the lex fori (Cyprus Law). It is worth noting that in an obiter dictum in the Kamal Hassanein Case Judge Artemis held that "... it would

be more equitable and reasonable to accept the approach of the Ioannis Daskalelis, [1974] Lloyd's LR 174. Therefore, in my opinion, the existence of a maritime lien should be considered as having a substantive nature and be decided according to the lex loci contractus. If according to the lex loci contractus a maritime lien arises such a maritime lien should be recognised by Cyprus Law; however, the rank of priorities of this maritime lien should be decided according to the lex fori (Cyprus Law)". However, Judge Artemis went on to concur with the majority judgement of the Supreme Court of Cyprus and no further emphasis was given on this point.

According to ABC Shipbrokers Ltd vs Preskott Shipping Co. Ltd, (1992)1 J.S.C. 1034, a person who has paid off the privileged claimant (e.g. a ship manager paying crew and master wages) does not stand in the shoes of the privileged claimant in respect of his maritime lien. This person can be considered only as a volunteer who has decided to pay off a debt which constituted a maritime lien on the vessel; however, by his action, he did not acquire any maritime lien and therefore had no right in rem based upon a maritime lien. In the above case, Judge Poyiadjis further held that "...a person who at the request of the owner of a vessel pays off the crew will stand as a necessaries man and thereby posses a statutory right of action in rem against the ship in respect of his advances. But necessaries men have no prior equity because a lien for necessaries is a statutory lien and it is not attached until the institution of an action in rem". Thus, in principle, a statutory lien does not crystalise into a maritime lien prior to an action in rem being filed with the Cypriot Courts.

In Commercial Bank of the Near East Ltd vs The Ship "Pegasus III", (1978)1 C.L.R. 597, the Supreme Court of Cyprus upheld the general principle of English Law by deciding that although Master's disbursements give rise to a maritime lien, necessaries only create a statutory lien which is enforceable against the vessel only after the institution of an action in rem.

It should be noted that although section 3(3) of the Administration of Justice Act 1956 enables a claimant to arrest a vessel to which a maritime lien attaches, no provisions are contained therein in respect of the arrest of a "sister vessel". However, this situation is compensated by section 3(4) of the 1956 Act which provides that the admiralty jurisdiction of the High Court may be invoked (whether the claim gives rise to a maritime lien over the vessel or not) by an action in rem against "..... (b) any other ship which, at the time when the action is brought, is beneficially owned as aforesaid". However, it should be distinguished that in such cases a person who possesses a maritime lien in respect of that "other ship" has no higher right or priority than that enjoyed, under the circumstances by a statutory lienee.

PRIORITIES

Cyprus admiralty courts are vested with jurisdiction under section 19 of the Courts of Justice Law, 1960, Law No. 14/60, to determine questions of priorities, as the Administration of Justice Act of 1956, section (3)(7) gave the High Court in England, sitting in Admiralty, jurisdiction to determine questions of title to the proceeds of sale of a vessel by an order of the Court. This jurisdiction is vested in the Court and may be exercised in the first instance by any Judge or Judges. The payment after the sale of the vessel is made out by an order of the Court or Judge, Section 11(2) of the Administration of Justice (Miscellaneous Provisions) Law, 1964 (Law No. 33/64).

With reference to English Law principles, The Bold Buccleugh (1851)7 Moo. P.C. 267, Cypriot Courts have defined the essence of a maritime lien as a right which "travels" with the vessel into whose possession it might subsequently pass, Supra note 6. Since, in principle, it is the vessel which is liable "to pay for the wrong it has done" there apply in Cyprus special admiralty procedures governing the issue of a judicial sale of a vessel. What is of particular interest for the purposes of the present article is the priority ranking of maritime liens and other claims as against the proceeds of such a judicial sale.

Prior to examining the rules governing the priority of maritime claims it is important to make the following three observations: (1) Under Cyprus Law the buyer of vessel through a judicial sale acquires a clean title in the vessel; (2) the proceeds of a judicial sale of a vessel are not shared equally between all privileged claimants but thorough and detailed rules have been developed for the ranking of each creditor; and (3) Cypriot Courts always have inherent discretion to vary the ranking of priorities on the basis of principles of equity and natural justice.

Maritime claims are ranked in following order under the Cyprus Law:

Marshall Expenses

Marshall expenses rank first in the list of priorities. The Marshall obtains such a high priority because without the services provided by him (supplies, guarding etc.) It would not be possible for the vessel to remain under the Admiralty Courts' jurisdiction during the period of the hearing of the trial.

Salvor's Lien

The salvor maintains such a high position in the ranking of priorities because without his emergency services there would not be any funds preserved for distribution between the claimants.

Damage Done By A Vessel

After salvors come the "damage done by a vessel" liens. These liens relate to claimants who have suffered physical damage by the vessel in question; for example a ship-to-ship collision or a vessel colliding with a fixed object.

Master's And Crew's Wages

Next in the ranking ladder come the claims of the Master and crew in respect of unpaid wages. These are contractual liens and are founded on the vessel's breach of the contract of employment with the Master and crew. It goes without saying that repatriation fees can be included, where appropriate, in a claim for Master's and crew's wages.

Bottomry

Again this is a contractual lien whose importance has greatly diminished due to modern highly sophisticated methods of extending credit.

Determination Of Priority Between Maritime Liens And Mortgages

Under Cyprus Law a mortgage is a special type of statutory lien and as such ranks below maritime liens. In Commercial Bank of the Near East Ltd vs The Ship "Pegassos III", Supra note 7, the Supreme Court of Cyprus, in examining the question of the priority of a foreign mortgage, A mortgage registered in Panama, held that although the validity and interpretation of such a foreign mortgage should be determined according to the law of the country in which the mortgage is registered, questions of priority are treated as procedural and should be determined according to the lex fori (Cyprus Law). The Court went on to reconfirm the general principle that maritime liens rank in priority over mortgages (whether registered or not).

Determination Of Priority Between Mortgages And "Necessaries"

This particular area of Cyprus Law has given rise to a considerable number of court decisions; it is noteworthy, however, that all court decisions incline to give a unified set of rules, in the sense that "necessaries" rank below mortgages.

In the Kamal Hassanein Case, Supra note 1, the Appellant supplied bunkering fuel to the vessel at the port of Alexandria in Egypt and was claiming that his claim had priority over that of the mortgagees (who were the interveners in the present case). Under Egyptian Law (the Law of the country governing the contract for the supply of bunkering fuel) the claim of the Appellants constituted a maritime lien and thus ranked higher than that of the mortgagees. However, the Cypriot Courts held that the lex fori (Cyprus Law) should apply to the facts of this case and therefore, the Appellant's claim did not give rise to a maritime lien and thus ranked below the claim of the mortgagees.

In Pilefs Limited and others vs The Commercial Bank of the Near East Ltd, (1983)1 C.L.R. 376, the Supreme Court of Cyprus held that necessaries men have no prior equity over mortgagees because a lien for necessaries is a statutory lien and it is not attached until the institution of an action in rem. In fact in this case the necessaries were supplied to the vessel five months prior to the registration of the mortgage. However, this statutory lien did not attach to the vessel until an action was brought, which was long after the mortgage was entered into. Indeed, it is implied from this case that should an action in rem for necessaries be instituted prior to the registration of the mortgage, such a claim would rank higher than that of the mortgagees.

Cargo Claims

In Nordic Bank PLC vs The ship "Seagull", (1989)1 C.L.R. 420, it was held that "...cargo claims carry no maritime lien and rank in priority after all mortgage claims".

A Shiprepairers' Lien - Possessory Liens

A shiprepairer has, under Cyprus Law, a possessory lien over the vessel and a general right to proceed in rem against the vessel. A possessory lien has priority over a mortgage, even in relation to a mortgage executed before the assumption of possession by the shiprepairer. In the instance of a mortgage the possessory lienee does not take the res cum onere. Where, however, possession is given up the security of the possessory lienee is lost and the mortgage prevails, Supra at note 14. It should be borne in mind that the essential element of a possessory lien is actual possession of the vessel until all the possessors demands have been met, or until the vessel is surrendered to the Marshall under an order of the Court. Thus a shiprepairer who forgoes his possessory lien, By losing physical possession of the vessel, can only proceed against the vessel with an action in rem, which of course shall leave him in a much worse off position in the order of priorities.

Of particular importance in the area of possessory liens is the case of Costas Stylianou vs The fishing trawler "Narkissos", (1963)1 C.L.R. 291.In this case a vessel was sold by public auction and the court was ask to determine the ranking of priorities of four creditors in respect of the proceeds of the sale of the vessel. The four creditors were the following:

a) a judgement-creditor for unspecified necessaries (the first suitor);

b) an execution-creditor for necessaries and repairs who kept at the time possession of the vessel through the Marshall (the second suitor);

c) a judgement-creditor entitled to a maritime lien originating in seamen's wages (the third suitor); and

d) a judgement-creditor in respect of a registered maritime mortgage (the fourth suitor).

The court held that the claim of the second suitor should rank first on the distributable amount for the following, inter alia, reasons:

a) the second suitor had a possessory lien over the vessel which he had, at all material times, maintained through the Marshall;

b) all creditors benefited by the supply of repairs and necessaries to the vessel by the second suitor, which contributed to her safety and maintenance prior to seizure; and

c) the amount of the second suitor's claim did not appear to be entirely out of proportion with the value of such repairs and necessaries.

The court went on to decide that after the claim of the second suitor, the claim of the third suitor should have priority. Unpaid seamen's wages was a maritime lien which constituted a privileged claim enforceable in the admiralty courts of Cyprus, in priority over the claims of a mortgagee and/or unsecured creditors.

Finally, between the claims of the first and fourth suitor, the court held that of the latter should stand in priority to the claim of the former. The first suitor was an unsecured creditor, who extended credit to the vessel, knowing of the mortgage charges, Such knowledge was proved by the evidence produced before the Court.

GENERAL POINTS ON PRIORITIES

In principle, Cypriot Courts shall apply the general rules regarding the ranking of priorities, as those were outlined in the preceding paragraphs of this article. However, it should always be borne in mind that those are not clear cut rules, and courts are always vested with an inherent discretion to vary these rules accordingly.

In Tramp Oil and Marine Ltd vs the Ship "Pigassios", (1989)1 C.L.R. 46, it was held that if there are special circumstances on grounds of equity and natural justice, the order of priorities may be reversed by the Court. Reliance for this proposition was based on the relevant statement of the law as appearing in Halsbury's Laws of England, 4th Ed. Vol. 43, paragraph 1142, which in so far as relevant reads: "It would seem that the determination of the priority of liens over one another rests on no rigid application of any rules but on the principles that equity shall be done to the parties in the circumstances of each particular case. However, there is, a general order of priority, and there are certain general rules which, in the absence of special circumstances, the court tends to apply". It is important to note that in none of the reported admiralty cases Cypriot Courts applied the above principle in varying the order of priorities on the basis of equitable considerations.

In Commercial Bank of the Near East Ltd vs The Ship "Pegasius III", Supra note 7, on an application by the Marshall for approval of the judicial sale of a vessel at less than the appraised value the court held that the grounds upon which a court will order that the vessel be sold for a lesser sum are that "...no offers have been received within the time limited for the sale to take place by the Marshall's terms of sale or that only an offer or offers to buy at less that the appraised value have been received within that time or where, for example, there has been a sudden drop in values since the appraisement so that no offers to buy or no offers at or above the appraised value are likely to be forthcoming".

In Nicos Zacharias and others vs The Ship "Reiher", (1994)1 J.S.C. 567, the lawyers of the Plaintiff applied to the Court for the issuance of a writ of attachment in respect of their legal fees which had previously been approved by the Court in another action. The Court held that legal fees already approved by the Court were identical to a court judgement and thus could be executed by a writ of attachment over the proceeds of the sale of the vessel kept with the Court.

ACKNOWLEDGEMENTS:

INTERNATIONAL JOURNAL OF SHIPPING LAW

EDITED BY

  • General Editor - Peter Morgan, M.B.E.
  • Deputy Editor - Jane Martineau
  • Assistant Editors - Graham Holliday and Andrew Bicknell of Clyde & Co., 51 Eastcheap, London EC3M 1JP

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